2012 farm income expected to hit record level

WASHINGTON, August 29, 2012- USDA’s Economic Research Service updated its 2012 Farm Sector Income Forecast yesterday, indicating a record income value for farmers in 2012 despite the harsh drought conditions.

U.S. net farm income is forecast to exceed $122 billion in 2012, up 3.7 percent from last year, and net cash income is up 3.4 percent from 2011 and expected to exceed $139 billion, both record nominal values, stated ERS.

“The expected increase in income reflects large price-led gains in corn and soybean receipts as well as large increases in crop insurance indemnities,” ERS reported. “Crop farm gains should be more than enough to offset livestock farmers' higher feed expenses and a decline in sales of wholesale milk.”

All three major measures of farm income are expected to achieve all-time nominal record highs, with inflation-adjusted net farm income is the second-highest since 1970. Farmers’ net value added is expected to increase by $5.9 billion in 2012 to $172.6 billion. A large anticipated rise in other farm income reflects large increases in crop insurance indemnity payouts. Also, farm equity is expected to increase to an all-time high of almost $2.3 trillion.

With a persistent drought, both U.S. corn and soybean supplies for marketing year 2012 are expected to be at 9-year lows. Despite the severity of the 2012 drought, shortfalls in marketing year production do not necessarily have a detrimental impact on sector-wide farm income, stated ERS. Shortages raise the prices farmers receive for crops sold in calendar-year 2012, and crop insurance partially offsets the impact of lower yields.

ERS said crop receipts are leading the 2012 income increase, with strong gains in corn, soybean, hay, and wheat sales reflecting higher commodity prices.

U.S. corn production is expected to decline, leading to drops in exports and alcohol for fuel use in marketing year 2012. While the quantity of corn for grain sold in 2012 is expected to decline almost 7.4 percent, a forecast rise of $1.31 per bushel should boost annual receipts. The drought is expected to result in the lowest soybean supply in 9 years. Soybean sales are expected to experience a significant rise in 2012 as an increase of almost $3 per bushel more than offsets an 8 percent decline in the quantity of soybeans sold.

Government payments paid directly to producers are expected to total $11.1 billion in 2012, a 6.3-percent increase from $10.4 billion paid out in 2011, ERS reported.

The report also indicated total production expenses in 2012 are forecast to rise $18.6 billion, or six percent. Since 2002, nominal total production expenses have risen $137 billion, or 72 percent. In inflation-adjusted dollars, 2012 production expenses will eclipse the previous peak set in 1979, ERS stated.

The major crop-related expenses are predicted to rise $5 billion, or 9 percent, much less than in 2011. ERS said the principal reason for the slowdown is a smaller increase in fertilizer expenses, as its prices-paid index is expected to rise only 3.5 percent this year, compared to a 30.2 percent jump in 2011. Even so, expenses for fertilizer and seeds are each slated to rise nearly $2 billion and pesticides another $1 billion.

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